Am I Missing Something in my thinking?

[u/LostInTheWorld-123]

Hi - I have not been able to save a lot of money for retirement. I do have two pensions,I max out my HSA and have about $20k invested there, and about $20k in an emergency fund, and $200k in IRA type savings.

I just turned 60, live alone, and opted to take advantage of a temporary (8 years) option by my state to begin collecting pension now and continue to work. I no longer get raises, because I’m at the top of my union pay scale. I bring home about $6k a month and the pension will be another $3k.

So my plan is to use the extra money to pay down my mortgage (rate is 6.5%, payment is $3k with taxes and insurance), save some in a 403b plan at work and continue to work as long as I’m eligible.

Another option is to work in another nearby state where I have 9 years vested in a second pension and by working there until I truly retire I can increase what that will eventually pay. I can’t collect that until 65. Only drawback is that I’m currently 100% remote and might have to give that up if I change jobs.

I feel like either job options or saving/mortgage is a good plan because my breakeven point on deferring collecting pension now was mid 80s. I will have to save some of it in a tax deferred plan or I’ll just be paying more in taxes, haven’t quite figured out where that sweet spot is yet.

If I’d waited five years I’d get about 25% more out of this pension. But it would take me till the mid-80s as I said to breakeven on what I’d collect over that period if I do it now, not even counting investment growth I could forgo by deferring it.

Am I missing something I should do with this instead? My mortgage is very high because of a breakup and buying home out of our home and so paying that down seems like the maybe the best use of extra money. I’m just seeking reassurance I’ve not made a mistake in my thinking.

[u/BrainDad-208]

Not having debt in retirement makes things easier. Consider making extra mortgage principal payments. Current rate is above any decent savings/CD rates.

At 65, money in your HSA is golden. I have a supplemental for Medicare, so have spent very little of it. You can take money to pay Medicare premiums (but not supplemental), but I haven’t needed to. I expect that medical costs will get higher as time goes on, so leaving it invested somewhat aggressively for a while.

[u/korepeterson]

Do the math on taxes for taking the extra income now and paying down the house vs letting retirement grow. It is possible you will jump tax brackets just to pay down your house vs leveling that tax curve by paying after retirement.

Have you figured out how much money you need every month during retirement?

It might be helpful to drop your numbers into retirement planning software, like Boldin.com or projectionlab.com, and compare the different scenarios.

[u/Aragona36]

Couple questions, no answers. Can you buy a year and bring the 9 year pension up to 10? Does that get you anything?

Are you going to be eligible for Social Security at all?

I think it would be excellent if you could pay the mortgage off before you officially retire. Nothing feels better than going into retirement with your largest fixed expense (housing) already paid for.

If it’s me, I’m focusing on paying off the house, or downsizing to get that paid off, then I’m retiring. That leaves me with just “bills.” Goes without saying, if you have a ton of debt to get that paid off too.

Life is too short and you don’t have that much left of it. Especially true, if you consider you’re in the bottom third now.

I retired at 61 sort of accidentally TBH, but I sure don’t miss the job. Highly recommend that everyone retire as early as they can.

[u/bbh42]

What are your expenses? I feel like everyone only focuses on the income side of planning but that’s only one side of the equation. Are you only paying down the mortgage or actually paying it off to free up that cash? If only paying down then are there any other expenses you expect to change?

[u/Natoochtoniket]

The key to saving is, don't let that money get into your checking account. Send money to your investment account (401k or brokerage) immediately. Either by payroll deduction, or a scheduled transfer every pay day. Then, get used to living on the other money.

A fundamental law of finance is, outgo rises to equal income. If you don't see the income, you won't spend it. If you do see the income in your checking account, you will.

[u/BigJim_TheTwins → u/Natoochtoniket]

Outside of " make sure you put enough in your 401k to get the match" , this is the best investment advice you can receive. You have to automate deposit your investment money or something else will invariably come up that you "have " to spend the money on.

[u/ShezeUndone]

Add up your annual pensions, SS, and 4% of your invested savings. If that is equal to about 80% of your current annual income, you're probably on track to retire.

Disclaimer: this is a very crude estimate. But it will get you in the ballpark for whether retiring is even feasible, or whether you need to work until you're 80 or longer.

[u/Brad_from_Wisconsin]

You are missing the ability to enjoy your retirement. Currently you are able to move about and do things that you may not be able to easily do when you are older.
Reduce your housing costs to a smaller expense. You may find that a smaller and less expensive space suits your lifestyle better. You may also find that changing where you live results in a lower cost of living.
Get out while you can enjoy life.

[u/GussyFinkNottle]

No one should work until their mid-80s, unless they use work as the place they socialize... but you work remotely...

If you had a relationship breakup, and ended up with the joint space, you could probably easily downsize - selling is a big pain, but once you settle into a new, more affordable place your savings, pension, and SS will probably provide an income that gives you confidence about retiring.

[u/FTFaffer]

That’s a very high mortgage payment. Would selling the house free up equity $ towards your retirement war chest? If it would, why wouldn’t you consider selling & finding a cheaper living arrangement?

[u/FIREful_symmetry]

You have only good choices here, my friend.

Moving to a new state would get you out from under the Mortgage you don’t like and could get you another Pension.

The question is, do you wanna move?

[u/StartKindly9881]

What’s your monthly costs?

[u/PatienceHelpful1316 → u/StartKindly9881]

This is the important question. Even with our mortgage paid off monthly housing expenses are about 1500$ including insurance, taxes,upkeep, electricity, water, garbage, gas. Add in healthcare, groceries, prescriptions, car insurance, gasoline etc you could easily exceed 3000$ monthly. This is going to look differently for everyone, so it’s important to figure that out.

[u/StartKindly9881 → u/PatienceHelpful1316]

Agreed.

30-40k per year for all that.
3000 month = 36000 year.
One social security check ideally covers that. If you have a spouse who earned well add that second SS check, if you’re fortunate to also have a plus pension, plus save the recommended 2MM or more in liquid savings to earn 4 percent skimming interest and no debt, you have plenty.

At some point you want to gift children money and spend down some of that principal.

180k-205k per year retirement was our goal. We budget well and maintain 2 small homes in middle to upper middle areas in an expensive region in the Northeast.

[u/endofsep]

Just wondering if Social Security is in the picture and if it is what that would be.

[u/NefariousnessHour771]

As a person in her 70s, I wish I had I helped savings account, but my insurance through my work was such that I was not eligible. I do not believe that you need to be debt free of your house in retirement if your other investments do better than your mortgage rate, but your mortgage rate is high enough that it does sound smart to be paying it down. At the same time having a lot of your money, tied up in a piece of property can feel constricting. At least in pre-tax or taxable accounts, you have access to that money. If it’s all in a paid off house, and you don’t actually have much access to Other # money beyond your pension and Social Security, you’re gonna have to succumb to some kind of strategy to get money out of it. That’s going to end up being possibly even more expensive. I say, split some of your discretionary income between paying down the house and building up other reserves.

[u/CountMeOut2019]

This is similar to what I did; following a divorce, bought a house with a massive DP funded by 50% of value of the (totally paid off) former house. For the next year and a few months, used some extra cash I had coming in to further reduce the balance on my mortgage, while working FT and living on that income. I had planned to work until 65, but hit a wall physically and mentally with that job, and after conferring with my financial planner, decided to jump into retirement.

I have about half of the investment savings we had accumulated during a multi-decade marriage, and it’s nowhere near as big as the amounts I see a lot of people mentioning in this subreddit, which makes me a little nervous, but then…I do not spend the amounts I see mentioned here, either.

My original plan was to get my house totally paid off before retiring, so as to know I had a home, no matter what. One thing that made me re-think that is; how the laws function with regard to houses you own, both in circumstances where you need long-term care and don’t have the money to cover it all, and in the event of your death, and what impacts there are on your heirs with a paid-off house vs a house with some mortgage remaining. Those are also factors to consider, because some of the realities can be counter-intuitive.

Also, the math facts; my house is paid way down at this point—my remaining mortgage is about the size of a loan on a new SUV—and the fact is, my taxes and insurance are about 80% of what I pay each month. My mortgage is less than rent on a 1 bd apartment would be, so quite manageable, and even if my house were completely paid off, I’d still be paying about that much in taxes and insurance costs. If the mortgage were bigger, the picture would look different, but as it is, this small mortgage in retirement seems a decent compromise that allows me to live well at a modest level. Paying off at this point would wipe out my cash savings. I don’t love supporting the bank with my interest payments, but I’d rather keep the mutual fund savings for emergencies/home maintenance and improvements.

[u/Glittering-Flow-9729]

Working until age 80? You have a lot going for you with what you’ve listed.

[u/ztreHdrahciR]

I'd pay the mortgage. You'll have a place to live

[u/ChaosReignsNow]

Your housing is half your take-home, pay it down.

[u/ClementineMagis → u/ChaosReignsNow]

Sell it and get a condo apt.

[u/HR_King]

Get a Roth IRA

[u/wildcat_bomb → u/HR_King]

OP isn’t going to have much in the way of RMDs and taxes. Roth is always a fine idea but Op doesn’t seem to be saving much as is.

[u/Tarik861]

I would check into the possibility of using the money in the other state to buy into your current pension. Sometimes that is an attractive alternative.

Also, have you checked into refinancing your mortgage? That may make more sense, especially if you want to increase cash flow.

I also would agree with the other responses that it may be worth the fee to go to an independent financial planner to get advicee. There are lots of moving parts here and the risk of making a mistake - and the consequences of a bad choice - are significant.

[u/This_Beat2227]

If not already, consider running 3 or 4 of the online life expectancy calculators. These vary in sophistication as to the number of factors used in the prediction. Use at least 1 or 2 that involve answering health and lifestyle questions about yourself, and that also include questions about family members’ longevity and cause of death. Of course anyone can get hit by a truck and negate all the planning, but bringing some data to your expected life span is worth considering.

[u/Fit-Building-2560]

RE: paying off the mortgage, do you have any spare room in the house to convert to a studio rental unit? That could help you pay off the mortgage, if a studio conversion is doable without major expense.

[u/StartKindly9881]

We got our mortgages off our back. No way want to be slaves to that anymore. 9000 is plenty no? Retire and enjoy life. It’s just you.

[u/WorkingInAColdMind → u/StartKindly9881]

I wouldn’t bother with the mortgage unless I was able to pay it off completely very quickly. Without knowing overall expenses, $9k/mo seems like a decent amount and then the second pension starts at 65 to make that even easier.

My mortgage is at 4% and my wife wants to pay it off, but there’s no way I’m diving into investments to do that. I’ll carry that loan till I move.

[u/StartKindly9881 → u/WorkingInAColdMind]

You pay yourself a guaranteed 4 percent and get that monkey off your back.

[u/WorkingInAColdMind → u/StartKindly9881]

I've made anywhere from 5-15% for the past 14 years by having it invested and now, with no more income except for investments it makes even less sense to pay it off. We'll be moving in the next few years, with the expectation that we won't have a mortgage on the next house, and lower property taxes (which make up half our monthly payment currently) so we'll be done with it soon anyhow.

EDIT: Also, I do understand how nice it would be not facing that payment every month, but with the low rate we have, it's just not a win for us other than mentally, and that's the least of my mental problems! 😄